Tobacco Growers Sue over USDA Formula

Source from:  BY JOHN REID BLACKWELL TIMES-DISPATCH STAFF WRITER Sep 21, 2005  09/21/2005

They say changing the rules for quota-buyout payments will cost them thousands Two Virginia tobacco growers have filed a lawsuit challenging the U.S. Department of Agriculture's method for determining payments to farmers from the $10 billion national tobacco-quota buyout. The suit, filed in U.S. District Court in Abingdon, claims U.S. Agriculture Secretary Mike Johanns exceeded his authority by deviating from the formula Congress approved to calculate payments to farmers. [img border=0 hspace="4" vspace="4" align="left" src=http://www.tobaccochina.com/english/picture/0591513.jpg] As a result of the changes, Washington County burley-tobacco growers William J. Neese and Daniel M. Johnson say they will lose hundreds of thousands of dollars. A lawyer for the farmers, Daniel Caldwell of the Penn, Stuart and Eskridge law firm in Abingdon, said Congress established clear rules for calculating buyout payments. But he said Johanns instead applied a "convoluted formula" that has the effect of benefiting tobacco companies, who are financing the buyout. "There is a huge savings to the tobacco industry by using the secretary [of agriculture's] formula instead of Congress' formula," Caldwell said. "We have been told by authorities in the industry that the secretary's formula probably will result in savings to the industry of about $600 million. That is $600 million that should go into the pockets of farmers." Caldwell said he is seeking to have the lawsuit certified as a class action, meaning it could impact thousands of other tobacco farmers, though an exact number is unknown. The USDA is expected to file a response to the lawsuit in October. A phone message left at the agency's communications office yesterday was not returned. The lawsuit stems from Congress' deci- sion last year to terminate the federal government's nearly 70-year-old supply-and price-control program for tobacco crops, returning U.S. leaf production to a fully free-market system for the first time since the Great Depression. After extensive lobbying by farmer organizations, Congress also approved a nearly $10 billion buyout to compensate farmers for the loss of tobacco quotas, essentially government-issued production licenses that had been treated as assets over the years. The buyout is expected to channel about $660 million to farmers and quota owners in Virginia during the next 10 years. Under the legislation passed by Congress, farmers who grew tobacco in 2002, 2003 and 2004 should be compensated $3 per pound based on their 2002 quota. Owners of tobacco quota -- that includes people who don't farm but owned these production licenses and leased it to active farmers -- should be compensated $7 per pound. According to the lawsuit, Johanns issued regulations in April that include other factors in the calculations for active producers. The regulations shift the calculations from the amount of quota to a farmer's actual sales of tobacco, Caldwell said. "The secretary simply does not have discretion to come along and change the formula and substitute his judgment for the judgment of Congress," Caldwell said. The lawsuit says Neese should receive $563,307 from the buyout, but he will only get $189,948 under the USDA calculations. Caldwell said Johnson should receive $503,166 but will only get $216,977. Neese attempted to appeal the calculations but was told by the Washington County Farm Service Agency that the formula could not be appealed, according to the lawsuit. To back their case, the farmers also submitted to the court a letter from Sen. George Allen, R-Va., to J.B. Penn, the USDA's undersecretary of farm and foreign agriculture services. Allen expressed concerns that the USDA's formula "appears to deviate from the clear direction of the Congress" and "could lead to a less than equitable result for some active producers." The letter was written in March, three months before the deadline for farmers to apply for buyout payments. Enditem